Correlation Between Bank of America and New Residential
Can any of the company-specific risk be diversified away by investing in both Bank of America and New Residential at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bank of America and New Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and New Residential Investment, you can compare the effects of market volatilities on Bank of America and New Residential and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bank of America with a short position of New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and New Residential.
Diversification Opportunities for Bank of America and New Residential
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Bank and New is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and Bank of America is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Verizon Communications are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of Bank of America i.e., Bank of America and New Residential go up and down completely randomly.
Pair Corralation between Bank of America and New Residential
Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the New Residential. In addition to that, Bank of America is 1.08 times more volatile than New Residential Investment. It trades about -0.17 of its total potential returns per unit of risk. New Residential Investment is currently generating about 0.18 per unit of volatility. If you would invest 1,027 in New Residential Investment on October 23, 2024 and sell it today you would earn a total of 73.00 from holding New Residential Investment or generate 7.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. New Residential Investment
Performance |
| Timeline |
| Verizon Communications |
| New Residential Inve |
Bank of America and New Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and New Residential
The main advantage of trading using opposite Bank of America and New Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, New Residential can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in New Residential will offset losses from the drop in New Residential's long position.| Bank of America vs. ANGLO ASIAN MINING | Bank of America vs. MAANSHAN IRON H | Bank of America vs. De Grey Mining | Bank of America vs. PT Steel Pipe |
| New Residential vs. Verizon Communications | New Residential vs. MICRONIC MYDATA | New Residential vs. Cass Information Systems | New Residential vs. DATATEC LTD 2 |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Directory module to find actively traded commodities issued by global exchanges.
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